A New Federal Arbitration Program Stumbles Out of the Gate

In 2020 Congress passed the “No Surprises Act” [i] (The “Act”) to address the sometimes-abusive practice of Out-of-Network medical billing. The Act created a federal arbitration program to adjudicate disputes between insurance providers, medical service providers, and the paying public. A recent legal challenge to some aspects of the program by the Texas Medical Association was successful and has raised important questions about the future of the program.

The Act institutes a federal arbitration program similar to FINRA’s[ii] regulation of the securities markets. Like FINRA, the public can now compel arbitration to contest abusive medical billing practices. Arbitrations under the Act can limit the amount an insured patient will pay for out-of-network emergency services and non-emergency services furnished by out-of-Network providers at an in-network medical facility. In addition, the Act establishes local standard rates that Insurers must pay to out-of-network medical providers.

In states like Texas, with specific state laws with state-mandated dispute processes and standard state reimbursement rates, state law prevails to the extent it conflicts with the Act.  

In July of 2021, the United States Department of Health and Human Services (HHS) and Centers for Medicaid and Medicare Services (CMS) issued Interim Final Rules (IFR) that detailed the program. The initial IFR notified Act participants of the impending regulations. Inexplicitly and in violation of the law, the agency did not take comments from the public before issuing the initial IFR. The Texas Court made this finding but unfortunately did not order CMS to reopen the public comment period before again issuing program rules. Regardless of the Court’s findings and uncertainty, CMS pressed forward, taking applications for Arbitration service providers to register as an Independent Dispute Resolution Entity (IDRE).

In response to the publication of the IFR, the Texas Medical Association (“The Association”) brought suit in Texas, seeking revisions to the rules. Specifically, the use of what is called the “Qualifying Payment Amount” (“QPA”). The QPA is set under the Act by CMS and establishes median market rates for specific emergency medical services. The QPA will set the typical local median rate the insurer would have to pay for the same service if provided by an in-network provider or facility.

Because Insurance providers set reimbursement rates, to begin with, insurance companies will effectively be setting the QPA. The Court agreed that this gave the insurance companies inordinate power to determine a “reasonable” QPA. In its decision, the Texas Court held that the initial CMS’s IFR were “…arbitrary, capricious, an abuse of discretion or were otherwise not in accordance with the law.”[iii] 

In response, CMS is revising the IFR in accordance with the Court’s ruling. In a process that began in the Fall of 2021, CMS continued to take applications for interested and qualified arbitration service providers as independent dispute resolution entities (“IDRE”). Despite the Court’s ruling and continuing uncertainty about the program rules, CMS opened the Act’s website portal as scheduled on April 12, 2022, to allow claims for arbitration to be filed with the federal government. CMS is now accepting claims.

At the outset, CMS has approved ten (Out of a minimum of 116 applicants) IDREs authorized to process ACT arbitrations. Traditional providers of medical arbitration services like the American Health Lawyers Association (“AHLA”) and the American Arbitration Association (“AAA”) are not represented in the initial release of IDRE members.[iv] Most of the ten approved entities have a history of processing disputes in Medicare and Medicaid claims.

For arbitrators, essential questions about the process and concerns about compensation remain unanswered. The gross compensation for an arbitration conducted under the Act is capped at $470 for individual claims and $670 for batched claims. This amount is split between the administrating IDRE and the independent Arbitrator at the discretion of the IDRE.

In addition to concerns about compensation, questions about the process are even more problematic. The arbitrations are conducted “Baseball” style. Each party must present their case virtually, documents only, through the CMS portal. Depending on the IDRE, it appears that arbitrators and parties will not have direct communication with each other during the arbitration, with the entities controlling the virtual process during the arbitration.

The compensation currently being offered to arbitrators in the case of at least one IDRE is as low as $75 per claim. The IDRE in question justified this amount by stating that such Baseball arbitrations under the Act are simple and require only a half-hour and claiming this equated to a reasonable $150 per hour. These rates are well below current compensation levels for professionally trained Neutrals. Questions are raised in the mind of some about the minimum training and licensing of arbitrators hired to conduct Act arbitrations. CMS encouraged IDRE to hire arbitrators with specialized expertise in medical billing and insurance codes. Arbitrators with such expertise command substantially higher fees and are unlikely to accept cases for a $75 fee.  

The Arbitrator’s independence is also an area of concern. Under the initial IFR, the Arbitrator was required to refer to the QPA (primarily set by insurance providers) almost exclusively in determining which party would prevail in the dispute. The process left the Arbitrator with very little discretion in coming to an impartial ruling. In addition to providing the QPA, CMS allowed arbitrators to consider the “training, experience, quality and outcomes of the provider, and CMS encouraged Arbitrators to consider the “good faith” of the parties.

Establishing the Good Faith of a party would seem to be problematic without direct contact with the parties before or during the arbitration. In response to this, CMS recently posted a video on its YouTube channel addressing this concern about determining the party’s good faith.[v]  The IFR effectively relied on one party, the Insurance industry, to establish the market value of medical services. Services that they then are required to pay. In effect, the insurance industry gets to decide for themselves how much they will pay for these medical contested medical services. The conflict is apparent and raises red flags in the minds of most experienced dispute resolution professionals. The disparity in knowledge, power, and influence between Insurance companies and doctors and patients was reasonably questioned by the Texas Court. The Court did not mandate specific changes to the IFR. The Texas Court retains jurisdiction and is expected to comment when the revised IFR is announced.

Industry interest groups like the American Health Lawyers Association (“AHLA”) have set up working groups to monitor developments. They are working to provide CMS with recommendations and comments on proposed changes to the IFR.

A prudent move by CMS would be to open up the public comment period and allow the public, dispute industry professionals, and the Insurance industry to contribute to constructing a viable and effective program. Questions, suggestions, and comments about the Act can be forwarded to the AHLA Working Group through the author.

[i] (Pub. L. No. 116-260, div. BB, tit.134 Stat 1182, 2758-2890 (2020)

[ii] FINRA: Federal Investment Regulatory Authority. https://www.finra.org/sites/default/files/Education/p117486.pdf


[iv] https://www.cms.gov/nosurprises/Help-resolve-payment-disputes/certified-IDRE-list

[v] https://www.youtube.com/watch?v=RRI2VT8QiiI


David Berry

Dr. David Berry, DC, JD a former Chiropractor is a California based commercial arbitrator and panelist with F.I.N.R.A. and the American Health Law Association. David is working on the new Federal No Surprises Act Arbitrations.

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